Talking Tax for Friday, March 22, 2019
Jamie Golombek, managing director of tax and estate planning at CIBC Wealth Advisory Service
TOP TAX DEDUCTIONS PEOPLE FORGET ABOUT
You can claim the disability amount if a medical professional certifies on Form T2201 that you had a severe and prolonged impairment in physical or mental functions. The federal disability amount is $8,235 for 2018 (it was $8,113 for 2017) and provincial disability amounts are also available. You may also be able to claim a disability amount that would otherwise be claimed by another individual (such as your spouse, common-law partner, child or parent) to the extent that the individual doesn’t need to claim the disability tax amount to reduce taxes payable to zero. In 2018, an Ontario resident could claim a federal disability amount worth about $1,235 and a provincial disability amount worth about $420 for a combined value of about $1,655.
Medical expenses, including premiums for private health insurance
You can claim a credit for total medical expenses that exceed the lesser of 3 per cent of your net income or $2,302 in 2018 ($2,268 in 2017). Common eligible medical expenses include fees for doctors, dentists, qualified therapists or other medical practitioners, prescription medication or eyewear, and hospital or medical laboratory services. One commonly overlooked expense is out-of-pocket costs for medical and dental insurance plans.
Registered Disability Savings Plan (RDSP)
RDSPs are tax-deferred savings plans that can benefit Canadians who are eligible for the Disability Tax Credit. Up to $200,000 can be contributed to the plan until the beneficiary turns 59, with no annual contribution limits. Canada Disability Savings Grants (CDSGs) and Canada Disability Savings Bonds (CDSBs) may be received from the federal government until the beneficiary turns 49. Depending on family income, CDSGs may be up to 300 per cent of your contributions, with a maximum of $3,500 per year, while no contributions are needed to receive the maximum CDSB of $1,000 per year.
RESP grants and bonds
RESPs allow for tax-efficient savings for children's postsecondary education. Up to $50,000 can be contributed for each child who is a beneficiary of an RESP. The federal government provides Canada Education Savings Grants (CESGs) equal to 20 per cent of the first $2,500 of annual RESP contributions per child or $500 for each year. If a contribution is not made in a particular year, unused CESG room is carried forward and beneficiaries up to age 17 can receive up to $1,000 of CESGs in any one year, with a $7,200 lifetime limit. Consequently, a catchup contribution of $5,000 will garner the maximum CESG of $1,000 in one year.
BIGGEST TAX MISTAKES PEOPLE MAKE
Not organizing your tax slips
Be sure that you give your current mailing address to all financial institutions at which you have financial accounts so they can send you all of your tax slips. You may want to compare the tax slips that you receive for the current year to slips you’ve received in the past to see if any might be missing. You may also want to compare income reported on investment statements to the amounts from tax slips to see if there could be differences that could be due to slips that haven’t been received. If you haven’t received an expected slip shortly after their expected deadline, you should contact the issuer to request a duplicate.
Claiming deductions that aren’t allowed
The CRA has specifically cited the following examples of expenses that are non-deductible, but tend to be claimed erroneously as other deductions or additional deductions: Support payments, legal expenses to collect or negotiate child or spousal support, legal fees you paid to get a separation or divorce or to establish custody for a child, funeral expenses, wedding expenses, loans to family members and a loss on the sale of a principal residence. You should make sure that an expense is deductible before making a claim to prevent potential penalties and interest on your tax return. The CRA offers information on what you can deduct on its website.
If you don’t file your tax return on time and you have a balance of taxes owing on the payment deadline (April 30, 2019 for the 2018 tax year), the penalty is 5 per cent of the outstanding balance, plus 1 per cent of your balance owing for each full month your return is late to a maximum of 12 months. When you are missing information, you should estimate amounts from other available information. For example, if you haven’t received a T3 or T5 slip that reports investment income, information from monthly investment statements may help you to calculate the amount of the income.